Economics Answers

If the price level increases, the real value of household money holdings falls. This will result in a downward shift of aggregate expenditures and a leftward shift of the aggregate demand curve.
EXPLAIN. True, false, or uncertain.

In an aggregate expenditure model with no government or foreign sectors, represented by C = a + bY and I (an autonomous amount), saving equals investment.
Explain in detail: TRUE< FALSE, or UNCERTAIN.

In an aggregate expenditure model with no government or foreign sectors, represented by C = a + bY and I (an autonomous amount), an increase in the marginal propensity to save causes the multiplier to rise.
Explain in detail: TRUE, FALSE, or UNCERTAIN.

A city government is trying to decide whether it should have celebration for its one-hundredth anniversary. The financial success of the project will be strongly dependent on the weather. The alternatives available to the city government are (1) have large celebration (2) have small celebration (3) have no celebration. The payoff matrix of this decision is as under

________________________________________________________________
0.5 0.2 0.3
S1 S2 S3
Sun Cloudy Rain
-------------------------------------------------------------------------------------------------------
D1 Large celebration 350,000 80,000 150,000

Muslim glass company faces the following demand and marginal revenue functions: P=1000-0.5Q MR=1000-Q,
P is the price, Q is the quantity and MR is the marginal revenue,
a) At what quantity is total revenue maximized? what is the price elasticity of demand at this quantity?
b) The firm has been selling 1000 units per period at a price of $500. What is the price elasticity of demand at this quantity?
c) At what price would Muslim sell no output? What quantity would be demanded if the product were given away.

For each of the following production functions, determine whether returns scales are decreasing, constant, or increasing
a. Q= 2K+3L+KL
b. Q=20K^0.6L^0.5
c. Q=100+3K+2L
d. Q=5K^a L^b, where a+b=1
e. Q= 10K^a L^b where a+b=1.2
f. Q= K/L

Use the production function: Q=10K^0.5L^0.6, suppose that the wage rate is $28, the price of capital also is $28, and the firm currently is producing 30.3 units of output per period using four units of capital and two units of labor. Is this an efficient resource combination? Explain. What would be a more efficient (not necessarily the best) combination? Why? (Hint: Compare the marginal products of capital and labor at the initial input combination.)

If the price elasticity is -0.3 it means

6) Which of the following fiscal policy changes would have a larger overall negative impact on AD and RGDP?

Explain your answer in a paragraph or two with credible logics and analysis.

A) A program of tax hike, distributed uniformly across the households earning over $300K annually filing tax returns, amounting to $85 billion in total tax hikes.

B) An $85 billion sequester (called automatic federal government spending cut) that went into effect on March 1, 2013. This was an across-the-board spending cut in federal government’s various existing programs and services, including maintenance of major infrastructures and aviation traffic control systems.

Use the data in the Table to answer the questions asked in 4a and 4b on each of the 3 variables for the US economy:

a. Calculate the changes in inflation rates, unemployment rates and the RGDP growth rates for the years from Year 2007 through 2014 and show them in a new column next to each of the values of the three variables (a template of the table is given below). 5 pts

Year Real GDP RGDP growth rate in % Unemployment Rate Change in U rate in % CPI Indices Inflation rate in %
2006 14,613.8 - 4.6% - 201.6 -
2007 14,873.7 ? 4.6% ? 207.3 ?
2008 14,830.4 ? 5.8% ? 215.3 ?
2009 14,418.7 ? 9.3% ? 214.53 ?
2010 14,783.8 ? 9.6% ? 218.05 ?
2011 15,020.6 ? 8.9% ? 224.93 ?
2012 15,369.2 ? 8.1% ? 229.59 ?
2013 15,710.3 ? 7.4% ? 232.96 ?
2014 16,089.8 6.2 236.74

Source: for CPI and U-Rate date: www.bls.gov
For RGDP data: www.bea.gov

b. Based on those calculations, briefly describe the overall economic performance over the last 8 years (2007-2014) and critically predict about these three macroeconomic variables for 2015-16.